India’s manufacturing sector expanded at its slowest pace in nearly five years in July, as softer demand weighed on factory activity.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI) slipped to 53.5 in July from 54.2 in June, marking its lowest reading since August 2021. Despite the slowdown, the PMI remained above the 50 mark, indicating that the sector continues to expand.

A key reason behind the weaker performance was slower growth in new orders. Manufacturers reported that both domestic and export demand moderated during the month, leading to a more cautious business environment. As a result, production growth eased and companies became less aggressive in expanding their operations.

Hiring also lost momentum. Employment growth slowed for the third consecutive month, reaching its weakest pace in almost 29 months. Businesses continued to add workers, but at a slower rate as they assessed demand conditions and managed operating costs more carefully.

There were, however, some positive signs. Input cost inflation softened, helping ease pressure on manufacturers. Companies also remained optimistic about future business conditions, supported by expectations of stronger demand, new product launches and planned investments over the coming year.

The latest PMI data adds to signs of a broader moderation in economic activity, following recent surveys that showed slower growth in India’s services sector and overall private sector output. While manufacturing remains in expansion territory, the pace of growth has clearly cooled compared with earlier months.

Going forward, businesses and investors will closely watch whether demand recovers in the coming months. A pickup in consumer spending, festival-related orders and export demand could help improve manufacturing activity, while prolonged weakness may continue to weigh on industrial growth and employment.

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